Author: Phil Flickinger
The ways Americans think about money have changed repeatedly—and drastically—over the last several decades. If you examine the four most recent generations, you’ll find multiple examples of financial technologies and products that were introduced and rapidly adopted. These disruptive debuts didn’t merely change the way money was spent; they shifted the way money was perceived.
With the new normal constantly being redefined, financial services companies should be mindful of what's shaped each generation's mindset. The challenge is bigger than understanding how they feel about spending, saving, and investing. It's also about considering how they feel about trusting, taking risks, and even expressing themselves with their money.
Baby Boomers (Born 1946-1964)
Baby Boomers are a generation that grew up in a post-war era, with parents who had a strong work ethic and a desire to provide their children with more opportunities than they had. As a result, many Baby Boomers were taught the value of saving and hard work at an early age. Overall, Baby Boomers view money as a tool for achieving financial security and stability.
The introduction of Individual Retirement Accounts (IRAs) in the late 1970s was a game-changer for Boomers. IRAs allowed individuals to save for retirement on their own, without the need for a company-sponsored pension plan. This gave Baby Boomers more control over their financial future, something they highly value. They also became more proactive in seeking out financial advice, as they realized the importance of making informed investment decisions. IRAs also gave Baby Boomers more tax advantages, which further encouraged them to save for retirement.
Money Market Funds (MMFs) emerged in the 1970s too, providing Baby Boomers with a higher-yielding alternative to traditional savings accounts. MMFs have operated in a niche between the capital markets and the banking system, as investment funds that offer private money-like assets with features similar to those of bank deposits. Money market accounts offered competitive interest rates while providing liquidity and safety. These accounts allowed individuals to earn interest on their savings while maintaining easy access to their funds.
The most formative new financial product we associate with Baby Boomers is credit cards. Their debut in the late 1960s and early 1970s fundamentally changed the way Boomers thought about and used money. They became accustomed to the convenience of purchasing items on credit, leading to an increase in debt and a decrease in savings rates.
The aforementioned products gave consumers a lot of power, but they came with support— something financial service entities can readily deliver. To resonate with Boomers, financial service companies should focus on providing guidance, offering advice, and building personal connections.
Generation X (born 1965-1976)
Generation Xers are renowned for being the first generation to grow up with personal computers. They are often seen as the “middle child” generation between Baby Boomers and Gen Y, and are typically characterized as being independent, adaptable, and tech-immigrants.
Gen X's wallets were impacted by the arrival of a new type of financial plastic: ATM cards. Banking became more secure and convenient. ATMs also provided Gen Xers with a sense of control over their finances, while also raising their expectations for when (immediately) and where (anywhere) they could access their money.
Gen X was also the first generation to adopt online banking en masse. Instead of relying on paper statements and physical visits to banks, they could now manage their money from the comfort of their own homes. This gave them an unprecedented ability to manage their finances in real time.
Finally, as Gen X reached the prime of their earning potential, online stock trading became mainstream. For the first time, individuals could invest in stocks from the comfort of their own homes without relying on traditional brokers. This democratization of investing gave rise to a culture of DIY investing and financial independence, and this newfound sense of empowerment shaped their outlook on money and investing for years to come.
Thanks to the innovations that influenced them, Generation X has always valued having control over their money. Financial services companies can resonate with Gen X by offering financial planning tools and personalized investment advice that align with this desire for control. They can also tailor their messaging to Gen X, addressing the feelings associated with being in command of your money.
Generation Y (born 1977-1995)
Generation Yers are celebrated for their social awareness, tendency to prioritize experiences over material possessions, and tech savviness. They came of age during a period of great change and innovation, which had a profound impact on their outlook towards money. If Gen X's signature technology is the personal computer, Gen Y's is the smartphone.
One of the most important innovations during Generation Y's lifetime is mobile banking; it's played a major role in shaping how they perceive money. The ability to check balances, transfer money, and even deposit checks using a mobile device has made banking more convenient and accessible than ever before. As a result, Generation Y is much more likely to use mobile banking as their primary method of managing finances.
Digital payment platforms (like PayPal and Venmo) are also a landmark technology that came of age alongside Gen Y. These tools have made it incredibly easy to send and receive money digitally. This convenience has made it easier for Generation Y to split bills with friends, pay for online purchases, and even pay rent.
Finally, neobanks (digital-only banks) have become increasingly popular among Generation Y. These banks offer features such as budgeting tools, personalized financial advice, and higher interest rates than traditional banks. As a generation that values convenience and technology, it's no surprise that many Generation Y members are turning to neobanks for their banking needs.
Gen Y has grown up with access to an array of financial products and technologies that make managing their finances easier and more convenient. As a result, financial service companies need to be aware of these preferences if they want to win Gen Y’s business & craft impactful communications. Big companies will always have big tech budgets, but financial service entities of any size can still create meaningful products and digital experiences that make managing money convenient.
Generation Z (born 1996-present)
Gen Z are technophiles who have never known a world without the internet or smartphones. They are the first generation to grow up in a fully digital world, which has influenced their perception of money immeasurably. They are financially aware, entrepreneurial, and tech natives.
Smartphones play a critical role in Gen Z's lives, more so than every previous generation. Thanks to the advent of contactless payments, wallets and mobile devices have effectively merged. Transactions that involve more complexity or time than "tapping to pay" have the potential to annoy them.
One financial product that has emerged in sync with Gen Z's need for instant gratification is "Buy Now, Pay Later (BNPL)" technology. Companies like Affirm and Klarna are enabling consumers to split their purchases into smaller, interest-free installments. One of the biggest benefits of BNPL technology is that it can help young people build credit. By making regular, on-time payments, they can establish a positive credit history that will be beneficial later in life when applying for loans, mortgages, and other financial products.
Cryptocurrencies are intangible assets that have been embraced by Gen Z (and elicited scorn from large swaths of older generations). Gen Z values the entrepreneurial autonomy that comes with owning and trading these digital assets, as well as the potential for higher returns compared to traditional investments. Most importantly, the decentralized ethos of crypto has captured the imaginations of Gen Zers; this anti-bank mindset could present a challenge to any companies offering traditional banking services.
Financial services companies can connect with Generation Z by digitizing the personalized service they bring to their brick & mortar locations. There might also be opportunities to tap into Gen Z’s growing distrust of big banks; the same sentiments that led them to cryptocurrencies could lead them to alternative solutions. Finally, designing programs and messaging that balance Gen Z’s entrepreneurial side with their nascent earning power could win over new young customers.
Conclusion
By tailoring their approaches to resonate with diverse generational preferences, financial services companies have the opportunity to foster deeper connections, build trust, and ultimately expand their customer base. Rather than adopting a one-size-fits-all approach, the key lies in offering personalized, innovative solutions that reflect the financial evolution of each generation, highlighting the company’s commitment to understanding, serving, and growing with its members through every stage of life.